Radar Results Price Guide to June 2024

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Radar Results Price Guide to June 2024

Revenue Type and Client’s Age
Investment and super clients (aged 80 yrs+) 0.9x to 1.1x
Previously 0.80x to 1.0x
Investment and super clients (aged 65 -79 yrs) 1.9x – 2.5x
Investment and super clients (aged up to 64 yrs) 2.3x to 3.0x
Previously 2.2x to 2.8x
Risk insurance clients (under 55 yrs) 2.3 to 3.0
Risk insurance clients (ages 55 to 60 yrs) 2.1x – 2.5x
Risk clients (aged 61 yrs+) 1.0x to 1.5x
Corporate super plans – commission switched off Negotiable
Mortgage clients – home loan trails 2.5x – 3.5x
Accounting fees – business clients 0.95x – 1.30x
Accounting fees – individual returns 0.5x to 0.9x
SMSF administration fees 1.5x – 1.75x
Previously 1.5x – 2.0x

The multiples above can vary depending on the terms the vendor offers to the purchaser when selling; the location of the vendor’s clients; the client’s ages; Funds Under Management or Administration, and the investment products recommended. The $ account balances of each client are essential with the fee-for-service charge — clients with higher $ account balances, paying higher fees, naturally command the higher multiples.

Multiples paid for risk books or insurance-revenue-based practices will depend on the client’s occupation, age, premium size, policy type, and geographic location of the clients

BASED ON FEE SIZE PER CLIENT

Revenue Type Recurring Revenue Multiple
Investment and super clients

Fee per client of less than $2,000 per annum

Fee per client between $2,000 to $4,000 per annum

Fee per client above $4,000 per annum

  

1.0x – 2.0x

2.2x to 2.5x

2.7x – 3.5x
Risk insurance clients

Fee per client of less than $2,000 per annum

Fee per client $2,000 to $4,000 per annum

Fee per client above $4,000 per annum

  

1.0x – 2.2x

2.2x to 2.5x

2.6x to 3.5x
Accounting fees – business clients

Fee per client up to $4,000 per annum

Fee per client above $4,000 per annum

  

1.1x to 1.2x

1.25x to 1.35x
Accounting fees – individual returns 0.5x to 0.9x

The multiples above can vary depending on the terms the vendor offers to the purchaser when selling, the location of the vendor’s clients, the client’s ages, and the investment products recommended. The account balances of each client are essential with the fee-for-service charge— The most requested clients are those paying fees between $3,000 to $6,000 per annum with reasonably high $ account balances. These clients, therefore, command the higher multiple. Multiples paid for risk books or insurance-revenue-based practices will depend on the client’s occupation, age, premium size, policy type, and geographic location of the clients.

The tables above show the multiples based on two different methods of valuing a client base. Most client bases are now valued using a combination of both methods.

Risk Insurance Registers Up and Down

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Risk insurance registers up and down

Radar Results has seen prices paid for risk insurance books move in both directions. Risk books can include life insurance, income protection and trauma insurance (sometime referred to as critical illness cover).

It appears that financial planners who own life books at the smaller end of the market, $100K to $200K of recurring revenue (RR), are looking to sell them now rather than wait for the findings and report from the Royal Commission. This is because the findings of the Royal Commission when released in Feb 2019, may shake up the market. Certainly, the higher education requirements are also scaring planners into making an early exit, not to mention the lower up-front commission system and the new two-year claw-back period for commissions. Radar Results has seen prices paid for smaller risk books move been 2 times and 3 times the annual recurring revenue (RR).

At the other end of the market, large risk insurance businesses of say $1M to $3M in annual RR can command far higher multiples. Last year banks’ lending to this larger sector of the market, funded clients to buy these high-end risk books at an average of more than 3.5x the RR.

Some banks have said that they can’t lend enough money to financial planners for acquisitions, but unfortunately, they have also increased the minimum loan that they will approve to $1M.

6 MONTHLY PRICE GUIDE

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RADAR’S SIX MONTHLY PRICE GUIDE  

  An indication of prices as at 31 March 2017

(Changes since 31 October 2016 in red)

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.8x
Investment and super clients (age 65-79 yrs) 1.8x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.0x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Super clients – commission switched off Neg*
Corporate super clients – flat fee per employee      1.5x to 2.0x
Cs and Ds – mix of both risk and investment 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fee – business clients 0.75x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

 

* No transactions

The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past six months to 31 March 2017

 

THE MAIN CHANGES

 

OLDER FP INVESTMENT CLIENTS:

The main changes to the Radar Results Price Guide has been to the category titled, ‘Investment client’s 80-plus years of age’. We have seen client registers change hands at prices of up to 1.8 times the recurring revenue (RR), previously 1.5 times. Basically, demand for these clients has increased due to a shortage of registers for sale. Even now, the older client bases in the marketplace are looking attractive. Clients aged in their late 70’s have also seen higher demand, attracting prices between 1.8 to 2.5 times the RR.  Multiples of RR of up to 2.5 times are being paid for registers, where the average age of the client is close to 65 years.  

CORPORATE SUPER PLANS (FLAT FEE):

A sector where price multiples have fallen is the flat fee corporate superannuation area. In place of the former product provider commission payment system, some licensees are now paying advisers a flat fee per employee. This sector has seen minimal sales at lower multiples. As a result, the market multiple rate of 2.5 times RR has been moved down to a maximum of 2.0 times.

CORPORATE SUPER PLANS (NO COMMISSIONS):

There is now debate as to how much corporate super client registers are worth after the commissions have been turned off and there’s no arrangement in place with their licensee for a flat fee payment. Contrary to the MySuper principles contained in the FOFA legislation, there are instances in which commission payments will continue, where most of the employees have made an investment selection rather than just accepting the MySuper default option.

THE VALUE OF ACCRUED DEFAULT AMOUNT (ADA) CLIENTS:

Radar Results has been asked to place a value on ADA clients, where they have moved away from an employer’s sponsored super plan and left the balance under that employer’s plan. Some call these clients inactive, dormant or de-linked members of employer sponsored super plans. Their information may or may not be up-to-date, and can usually be accessed by the existing adviser by going to the product manager’s portal.

There are thoughts that ADA clients may be a liability if retained by the existing adviser, while others feel they are an asset and can be contacted and converted into quality FP clients.

ACCOUNTING FEES:

Prices being paid for lower end business accounting fees like BAS return work has fallen from 90 cents to 75 cents. At the higher end, management accounting fees, audit, trust and Self-Managed Super Fund (SMSF) administration fees have either stabilised or in some cases increased. Demand is such that price multiples could escalate to $1.50 in the $1.00 for quality accounting businesses primarily in the CBD and metropolitan regions. Radar Results has seen $1.80 in the $1.00 paid for SMSF compliance fees.

MORTGAGE BOOKS:

Demand for mortgage books will see the current price move further up in the next six to twelve months. Currently, the 2.0 to 2.5 times trail appears to be the market price, however, in instances in which there has been 100 per cent payment upfront, 2.7 to 2.8 times trail with no claw-back has occurred. I would not be surprised to see 3.0 times the trail become a common price paid by 2018/19.

RISK CLIENTS:

There is still a huge demand for risk clients, a demand which has not been dampened by the proposed new Life Insurance Legislation. Most demand has been for book sizes of $150,000 to $500,000 in annual renewal commissions. The age of the clients is important, and the younger the clients, the higher the price multiple. Whether the premiums have been written as stepped or level doesn’t appear to make a price difference.

Radar’s Six Monthly Price Guide

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An indication of prices as at 31 March 2016 

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.5x
Investment and super clients (age 65-79 yrs) 2.0x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.3x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Corporate super clients 0.0x to 0.5x
Cs and Ds – mix of both risk and investment 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fee – business clients 0.9x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

 The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past six months to 31 March 2016

THE MAIN CHANGES

The main change Radar Results has seen in the buying and selling market for financial planning practices has been the increase in demand for older investment and insurance-based clients, for example, where buyers had heavily discounted the multiple of recurring revenue for investment clients over the age of 75, there has been a trend to buy now at these attractive rates. Further, as the life expectancy of an 80-year-old female is now 10 years and eight years for a male, there is real value in these ‘older’ clients. Therefore, Radar Results’ Six-Monthly Price Guide has moved the age category from 75 years to 80 years and above.

Similarly, with risk insurance clients, the age bracket has been moved to over and under 55 years of age, replacing the previous 50-year-old age bracket. Once again, buyers are no longer concerned if risk clients purchased are over the age of 50, or 55 for that matter, as the likelihood of the policies remaining in force to the age of 65 is now higher due to people retiring at a later stage in life and having children later. The higher mortgage levels on the principal residence also need protection for longer.

EBIT MULTIPLES

The multiple paid for larger financial planning businesses has a price range of four to six times the normalised EBIT, up from 5.5x as the maximum rate. Radar Results has seen larger, better quality practices come to market, commanding EBIT multiples not seen since prior to the Global Financial Crisis (GFC).

The price range for mortgage management businesses is 3.5 to 4.0 times the normalised EBIT, and 3.5 to 4.5 times the normalised EBIT for large accounting practices.

 

LINGERING EFFECT OF FUTURE of FINANCIAL ADVICE (FOFA) REFORMS ON PRICE 

When selling your business, many more questions are now being asked by potential buyers, such as:

–      Do all your clients need a Fee Disclosure Statement (FDS) issued or just the fee-for-service clients?

–      Pre-July 2013, which of your clients are grandfathered under FoFA?

–      How many clients need an opt-in letter sent every two years?  

–      Since July 2013, how many clients are new?

–      How many are grandfathered clients, and have since had their investment and strategy substantially change, turning them now into opt-in clients?

–      Is the volume bonus going to move to my licensee?

–      Will the over-ride bonus previously paid by product providers to the vendor continue after the sale?

The additional red tape caused by FoFA reform has led to fee-for-service multiples for client registers, and planning books to either plateau or fall. Certainly, risk insurance books and businesses haven’t been affected by FoFA reform, and still command the highest multiples of recurring revenue within the financial service sector.

Accounting practices remain in high demand, particularly in the city and regional areas. Mortgage book prices are at an all-time high, and buyers are keen to pay cash for even the smallest books, for example, $2,000 per month trails. Unfortunately, the corporate superannuation section still suffers, with many planners not even prepared to make an offer. With commissions being turned off early next year, planners are now in search of institutions to replace these commissions with a flat fee per employee.  

High Netwealth Clients In Big Demand

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Radar Results has received a number of requests from financial planners looking to buy High Net Wealth (HNW) clients. To clarify, a HNW financial planning client can be described as one with investments under management of at least $1 million. Some advisers would say that an investment portfolio of this size is not particularly high nowadays. But, if both the husband and wife each own at least $1 million, then the family has $2 million in funds under management (FUM).
Depending on age, prices paid recently for these types of HNW clients can range from three to four times the annual fees. To receive a price multiple in this range, the preferred ages would be between 40 and 60 years. The Sydney CBD and north-west regions of Sydney seem to show the highest demand for this client style.

NON-OPT-IN WORTH MORE

When you buy a financial planning register or business which has clients that were established as a new client before 1 July 2013, they will not require an opt-in letter and are preserved as being non-opt-in clients. The pre-July 2013 clients will not require any opt-in letters to be sent, even if the adviser and licensee are completely new as a result of the sale. Demand for these non-opt-in clients has actually increased, and prices reflect this higher demand.
Interestingly, if a client moves from one adviser to another without being part of a sale transaction, then the grandfathering of the opt-in disappears. A letter must then be sent out every two years requesting confirmation from the client that they wish to continue with that adviser, and consequently receive the same services for the disclosed fees. If the letter is not returned, fees and commissions must be turned off. A reduced level of service offered to the client or an increase in fees, will also result in the preservation of non-opt-in being removed.

6 Monthly Price Guide

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An indication of prices as at September 2015:

Revenue Type Recurring Revenue multiple
Investment and super clients (over 75 years of age)  1.0x to 1.5x
Investment and super clients (65-74 years of age) 2.0x to 2.5x
Investment and super clients (up to 64 years of age) 2.5x to 3.0x
Risk clients (under 50 years of age) 3.0x to 3.7x
Risk clients (over 51 years of age) 2.0x to 2.5x
Corporate super clients 0.5x to 1.0x
C’s and D’s (investment ‘grandfathered’ and risk) 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fees – business clients 0.9x to 1.4x
Accounting fee – individual returns 0.5x to 0.9x

 The above multiples can vary depending upon the terms offered by the vendor, geographic location of the clients, age of the clients and the investment products within the client portfolios. Multiples paid for risk books or insurance-revenue based practices will vary depending upon the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the clients. The above multiples are for high-quality risk clients.

The above table is based on market activity over the past six months to September 2015.

The multiple of recurring revenue paid for a financial planning register can vary depending upon the payment terms offered by the vendor, location of the clients, age of the clients and the type of product or platform in which the client has invested.

The multiple paid for risk books will vary depending upon the size of the sum assured, the premium and how it’s paid, the insurance company (product provider), whether the insurance is hybrid (combination of stepped and level premiums) and whether the insurance commission was  paid up-front, for example, 100% up-front with a small 10% renewal trail.

The multiple paid for mortgage book trails will vary according to the size of each loan, the occupation of the borrower, whether the loans were written as variable or fixed, age of each loan and the aggregator.

The multiple paid for larger financial planning businesses has a range of four to five-and-a-half times the normalised EBIT. The price range for mortgage management businesses is three-and-a-half to four times normalised EBIT, and large accounting practices range from three-and-a-half to four-and-a-half time normalised EBIT.

Once again, multiples paid for smaller accounting businesses ($500K to $1M in fees) have risen as a result of demand being higher than it was at the time of the last survey. The highest demand for this price range comes from financial planning practices, or accountants heavily into financial planning, and who wish to bolster the opportunity to cross-sell financial services to newly-acquired tax clients.

In summary, prices paid for financial planning businesses based on profit has fallen. The opposite has occurred for accounting businesses and trail revenue connected with loan books, with both rising due to demand.

TURNING C and D PLANNING CLIENTS INTO A’s and B’s:

In June this year, Radar Results outsourced the telemarketing division of its business to a Newcastle-based company, Hot Source Marketing (HSM). HSM has a six-person team devoted to contacting Radar’s data base of 9,500 planners, accountants and mortgage brokers.

So far, the results have been brilliant, with 21 practices located that are looking to sell or merge their respective businesses, and to this point we are only 20% into the data base. In addition, all planners (over 300) who were in attendance at one of Radar’s Seller’s Workshops since 2010 when FOFA was announced, will be contacted. Planners and accountants who requested a DIY Sellers Kit in the past will be contacted discreetly, and HSM will get in touch with Radar’s 280 buyer clients to ask some key questions. Finally, 900 planners and accountants who had previously requested a Fee Appraisal from Radar Results will be telephoned. 

HSM can phone your database of C’s and D’s, including orphans, and arrange meetings with those who show promise or require advice. If the orphan doesn’t have a relevant contact number, HSM can locate the most current details, such as address and phone number. Any business that doesn’t have the time to contact their C’s and D’s, or possibly can’t locate their client, should be utilising the services offered by HSM. HSM operates on an hourly rate.

 

Radar’s six monthly price guide

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An indication of prices as at January 2015

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 75 yrs+) 1.0x to 1.5x
Investment and super clients (age 65-74 yrs) 2.0x to 2.5x
Investment and super clients (age 30-64 yrs) 2.5x to 3.5x
Investment clients on Platforms with ‘high’ MERs# Up to 4.0x
Risk clients (age under 50 years) 3.0x to 4.0x
Corporate super clients 0.5x to 1.0x
Cs and Ds (investment and risk) 2.0x to 2.5x
General insurance 2.0x to 2.2x
Mortgage clients 2.0x to 2.5x
Accounting fees – Fees on non-business clients ie individual returns, is generally lower 0.3x to 0.6x 0.9x to 1.2x

 

The multiples above can vary depending on the terms offered by the vendor, actual location of the clients, client ages and the particular investment products recommended. In relation to multiples paid for risk books or insurance-revenue based practices, the client’s occupation, premium size, policy type and insurance companies used are all critical factors. The multiples displayed above are for high-quality risk clients. # Management Expense Ratios (MER) can vary from platform to platform, however, 2% per annum before adding buy/sell spreads and adviser fees would be considered ‘high’.   

The table above is based on market activity over the past six months to 31 January 2015.

The multiple of recurring revenue paid for a financial planning register can vary depending on terms offered by the vendor, location of the clients, age of the clients and the investment products which had been used previously.

The multiple paid for risk books will vary depending on the size of the sum assured, the premium and how it’s paid, the insurance company (product provider), whether the insurance is hybrid (combination of stepped and level premiums) and whether the insurance commission accepted by the adviser was all paid up-front.

The multiple paid for mortgage book trails will vary according to the size of each loan, the occupation of the borrower, whether the loans were written as variable or fixed, age of each loan and who’s the aggregator.

The multiple paid for a general insurance register depends on the level of domestic insurances compared with commercial insurance. Domestic includes car, house and contents insurance. Commercial would include office buildings, PI insurance, business insurance packages, including public liability. Commercial insurance attracts a higher multiple and the location of the business also plays a role.

Multiples paid for accounting businesses have risen once again and the demand is higher than ever. Not only do accounting practices wish to buy or merge with other accounting practices, but financial planners are also buying into these businesses. Business accounting fees, as compared to individual return fees, are in high demand and can command a higher multiple. The selling of country and regional practices can take a lot longer due to the limited number of buyers in those areas and they tend to sell for a lower multiple than city-based practices.

I’ve added an additional sector, ‘Investment clients on platforms with high Management Expense Ratios (MERs). So, what’s a high MER? Tony Blythe, Relationship and Training Manager for boutique licensee HNW Planning, suggests that before you add buy/sell spreads and adviser fees, some platforms can have a MER of up to 2% per annum. These platforms can sell for up to four times their recurring revenue (RR). The purchasing adviser can move the client’s investment to a lower priced platform, and at the same time increase the adviser fee commensurate with the service they are providing. Overall, this can save the client up to 1.5% per annum.

Time to sell?

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There’s really no such thing as an ideal time to sell your accounting or mortgage business, but if you have a financial planning business, now is the time to seriously consider selling. So, why now?

For several years, there’s been a lot of poor media on the planning industry, and with two parliamentary inquiries underway and a third one to start soon, the spotlight on financial planners is only going to heat up.

The educational requirement on planners has always been questioned, and the recommendation from industry associations is that a transition is required. If you don’t want to start a University Degree course or the equivalent, it’s time to retire or change professions. If your business is primarily investment focused with a lot of shares and your adviser service fee is aligned with the accountant balance, be wary of your revenue falling in another share market crash. With the world in political turmoil, October being the worst month for corrections, and after three years of upward share market movement, a downturn is expected. Another reason for planners looking to find a buyer now is finance. Just over 72% of clients signed with Radar Results require finance to buy a business or client register. Shortly after the GFC, you couldn’t get a cent of finance; banks are now nearly giving it away. With rumours swirling of interest rates set to increase and a second GFC on the way, now is the best time to sell.
The change to a fee-for-service model from the commission system will eventually reduce the value of your planning business. Recurring revenue multiples are set to be replaced by profitability valuations. However, the recurring revenue multiples being paid for financial planning businesses and client registers are currently at an all-time high, which can be attributed to the demand by buyers.

Radar Results, Australia’s largest buyer’s agent’s service, has over 200 financial planners and accountants under contract looking to buy businesses. Some have purchase budgets of $5M to $10M, while others want to spend just a few hundred thousand dollars. Cross selling other services, such as tax returns, loans and property sales is also holding up today’s ‘higher than normal’ prices.

The biggest concern I’m seeing is financial planners wanting to sell, but not having the business ready. Many still do not have a ‘press a button’ client list, or are not fully paperless. The old school planner from the life insurance days of the 70’s and 80’s wants to hang on and die with their business. They don’t actually want to die at their desk, they just don’t know how to take that next step.

Where’s the highest demand?

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The financial services sector operates in a number of different areas, and buyers can choose from a number of sectors, such as accounting, SMSF’s, risk insurance, mortgage loans and general insurance.

Next month, Radar Results will produce its ‘6 Monthly Price Guide’ listing multiples that have been paid for these different types of businesses. But leaving multiples aside, which areas have the highest demand? Currently, it’s the high growth areas of Queensland, in particular the Sunshine Coast. Next is Adelaide and Perth, with financial planning and accounting in high demand as evidenced by the prices being paid.

Next is Sydney, specifically the northern suburbs and inner west looking for financial planning books; $150,000 of RR. South Sydney is a key demand area for mortgage books of any size with trails fetching up to two times, and the traditional risk insurance books still fetching 3.5 times if the clients are not too old.

Accounting businesses are required in Sydney’s CBD area, with tax fees commanding $1/$1, or even more.

Particular platforms are also in high demand, like Asgard, Navigator, Oasis, Summit and North. Some of Radar’s clients would pay four times recurring revenue if the age of the clients were to their liking and the location of the clients were geographically suitable.

Since 2011, there’s been 104 practices or books of clients sold through Radar, with a large proportion coming from NSW. While our head office is in NSW, you would expect a more even pattern state by state, particularly as we have had offices in all states since 2011.

State

Number
NSW

42
QLD

27
VIC

13
SA

10
WA

10
ACT

2
TAS

1
NT

0